Eligibility Requirements

September 18th, 2006

SIMPLE IRA Eligibility Requirements

What are the Eligibility Requirements for employees to participate in a SIMPLE IRA plan?

Generally, any employee who received compensation of $5,000 or more in any prior two years and who the employer reasonably expects to receive at least $5,000 in compensation in the current year is eligible to participate.

Employees in collective bargaining units and nonresident aliens may be excluded.

All employees of a controlled group or affiliated service organization who meet the Eligibility Requirements, including leased employees described in Code sections 414(n) and (o) must be allowed to participate.

The related organizations that employ these employees must join the establishment of the SIMPLE plan.

Note:

An employee does not necessarily have to work 24 consecutive months to have two prior years of service.

For example, XYZ Corp. established a SIMPLE IRA plan, effective January 1, 2003. XYZ Corp’s SIMPLE IRA plan requires an employee to have worked during any two prior years and to have made at least $5,000 in each of those years.

Mary Smith started working with XYZ on November 1, 2002 and is currently employed with the firm. Mary earned $6,000 in W-2 wages with XYZ Corp. in 2002 and earned $25,000 in W-2 wages in 2003. Mary is eligible to participate in the SIMPLE IRA plan on January 1, 2004.

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